Year of Publication
2014
NGO associated?
✖
Source URL
www.africaneconomicoutlook.org
Summary
A strong rebound during the rst half of scal year 2013/14 seemed possible but recent unrest has cast a shadow over the prospects for economic recovery and development. Based on the existing oil production pro le and expected growth in non-oil sectors, such as agriculture, construction and services, GDP percentage change was expected to pick up to 40% by the end of FY 2013/14, following two years of strong economic contraction (after independence in 2011). However, the recent civil strife cast a shadow over the prospects for economic recovery and development. Oil production and associated investments remain the key drivers of growth but civil strife has seen the production of oil cut in half. In FY 2013/14, about 70% of government revenues are derived from oil and the sector contributes over 60% of GDP in terms of direct exports, as well as associated investments1. Given the current political situation, the anticipated increases in government expenditure starting in January 2014 will not be possible. A projected 11% jump in in ation in the second half of 2013/14 will be mainly due to the depreciation of the South Sudanese Pound (SSP) and volatility in supply of basic goods due to insecurity. In the medium term however, if the civil war that started in December 2013 is resolved and order and security restored, South Sudan has the potential to grow its GDP by as much as 7%-8% per year.
Since 2012, macroeconomic stability, long-term scal sustainability and economic growth have been elusive amidst severe economic, scal and political crisis. The dispute with Sudan led to the shutdown of oil production in January 2012 creating a large scal gap and a substantial de cit in the balance of payments. To close the scal shortfall, the government resorted to drawing down government reserves, contracted internal and external debts, and instituted large spending cuts by nearly 40% in real terms. It also put into place reforms to increase non-oil revenues. As a result of the austerity measures, the economy contracted by about 21% and 28% in 2011/12 and 2012/13 respectively. During the same period, the overall scal balance deteriorated, the current account balance collapsed from 9% to 19.9% of GDP, and external reserves were depleted to less than 1.5 months’ worth of imports. External debt increased from zero to 6.6% of GDP, domestic arrears accrued to about USD 150 million or 5% of total public spending for FY 2013/14 and the government had to borrow about USD 1.5 billion from domestic commercial banks and oil companies on short-term maturity of one year or less.
In the short and medium term, the country faces considerable challenges. The latter concern six key economic areas, notably i) political instability and inter-tribal con icts; ii) poor infrastructure; iii) over dependence on oil production; iv) strong import dependence with virtually no manufacturing or commercial agricultural base or services sector; v) extremely low human capital with one of the world’s lowest adult literacy levels at 27%, high poverty levels, and troubling health and sanitation indicators; and vi) a large pastoralist, non-formal economy, with 83% of the population living in rural areas. While addressing each of the above challenges is a pressing need, the achievement of internal political stability and peaceful coexistence with Sudan seem fundamental for the development of the country.
Since 2012, macroeconomic stability, long-term scal sustainability and economic growth have been elusive amidst severe economic, scal and political crisis. The dispute with Sudan led to the shutdown of oil production in January 2012 creating a large scal gap and a substantial de cit in the balance of payments. To close the scal shortfall, the government resorted to drawing down government reserves, contracted internal and external debts, and instituted large spending cuts by nearly 40% in real terms. It also put into place reforms to increase non-oil revenues. As a result of the austerity measures, the economy contracted by about 21% and 28% in 2011/12 and 2012/13 respectively. During the same period, the overall scal balance deteriorated, the current account balance collapsed from 9% to 19.9% of GDP, and external reserves were depleted to less than 1.5 months’ worth of imports. External debt increased from zero to 6.6% of GDP, domestic arrears accrued to about USD 150 million or 5% of total public spending for FY 2013/14 and the government had to borrow about USD 1.5 billion from domestic commercial banks and oil companies on short-term maturity of one year or less.
In the short and medium term, the country faces considerable challenges. The latter concern six key economic areas, notably i) political instability and inter-tribal con icts; ii) poor infrastructure; iii) over dependence on oil production; iv) strong import dependence with virtually no manufacturing or commercial agricultural base or services sector; v) extremely low human capital with one of the world’s lowest adult literacy levels at 27%, high poverty levels, and troubling health and sanitation indicators; and vi) a large pastoralist, non-formal economy, with 83% of the population living in rural areas. While addressing each of the above challenges is a pressing need, the achievement of internal political stability and peaceful coexistence with Sudan seem fundamental for the development of the country.